The benefits skirmish: Balls unveils Labour's first strike

Labour has unveiled plans to push the long-term unemployed back into work, ahead of a crucial vote on benefits next week.

In an early skirmish on an issue expected to define the next year in parliament, Ed Balls unveiled plans to get people who have been out of work for longer than two years back into employment.

"Britain needs real welfare reform that is tough, fair and that works, not divisive, nasty and misleading smears from an out of touch and failing government," he said.

The scheme would require government subsidies to employers in the private and voluntary sector to encourage them to take on workers for a six-month placement, after which they would need to find work themselves.

That subsidy would require £1 billion funding, which Labour wants to retrieve via a 20% limit on tax relief for pensions contributions for those earning £150,000 a year or more.

The Conservatives said the funding proposal had already been used by Labour in March when it pledged to reverse tax credit changes.

"Ed Balls is trying to spend the same money twice. That means more borrowing and more debt - exactly how Labour got us into this mess in the first place," Conservative chairman Grant Shapps said.

There are also concerns that restricting tax relief on pension contributions for high-earners could create extraordinary complexities in the system.

The scheme, which would initially apply to 130,000 people, would be mandatory. Anyone who did not accept the offer of work would lose benefits.

That tough element to the scheme is designed to prevent Labour from being seen as a soft touch on welfare ahead of next week's vote, when Ed Miliband will order his MPs to oppose a tough one per cent increase on benefits.

The increase adds up to a real-terms loss for claimants, as it is two per cent below inflation, but the government believes the public will back the move.

George Osborne effectively set a trap for Labour by introducing the proposal – complete with emotive language about claimants staying at home all day – in a bid to put Labour on the wrong side of public opinion.

But recent polling suggests public opinion on benefits may be more complex than previously thought. Certainly, views are more sympathetic toward claims by low-paid workers who are in employment.

The Labour scheme would offer those out of work for two years or more 25 hours of work a week at the national minimum wage.

While the headline rate of unemployment has fallen recently, there has been a sustained rise in long-term joblessness.